What is the difference between current and deferred tax?

Current tax is what the return will show as owed for the year. Deferred tax is the change in future tax consequences — temporary differences and carryforwards — recognized now under ASC 740.

Why is tax still owed with an NOL?

Post-2017 federal NOLs can offset at most 80% of taxable income before the deduction, so a profitable year with a large NOL still pays tax on the remaining 20%.

Journal entry for an income tax provision

At period-end, debit Income tax expense for the total provision, credit Income taxes payable for current tax, and credit (or debit) the Deferred tax asset for the change in deferred tax — for example, a net operating loss carryforward used this year.

Current tax: $55,020
Deferred tax expense: $31,500
Total provision: $86,520
Entity: Illustrative company
Basis: Accrual
Currency: USD
Period: Year ended December 31, 2026

The worked example

A C corporation earns $400,000 before tax, with $12,000 of non-deductible expenses, and carries a $150,000 federal NOL with no valuation allowance. It uses $150,000 of the NOL, owes $55,020 of current federal tax at 21%, and the deferred tax asset falls by $31,500.

Adjusting entry · December 31, 2026

JE-131 Dec 2026Adjustingposted

Book the year's federal tax provision.

Journal entry JE-1, 3 lines
Account	Debit	Credit
8000 Income tax expense	86,520 US Dollar
2500 Income taxes payable		55,020 US Dollar
1800 Deferred tax asset		31,500 US Dollar

Totals	86,520 US Dollar	86,520 US Dollar

Balanced.

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
1800 Deferred tax asset		31,500 US Dollar
2500 Income taxes payable		55,020 US Dollar
8000 Income tax expense	86,520 US Dollar

Totals	86,520 US Dollar	86,520 US Dollar

Why it is booked this way

Income tax expense under ASC 740 has two parts: what the year's return owes, and the change in the tax the company expects to pay or save in future years. Both land in the same expense line.

Using a carryforward reduces current tax but also uses up the deferred tax asset that represented it. The entry records both effects, so the provision reflects the year's income at the statutory rate.

Common mistakes

Booking only the cash paid with the return as tax expense.
Using an NOL against 100% of taxable income.
Carrying a deferred tax asset without assessing whether a valuation allowance is needed.

Questions

What is the difference between current and deferred tax?: Current tax is what the return will show as owed for the year. Deferred tax is the change in future tax consequences — temporary differences and carryforwards — recognized now under ASC 740.
Why is tax still owed with an NOL?: Post-2017 federal NOLs can offset at most 80% of taxable income before the deduction, so a profitable year with a large NOL still pays tax on the remaining 20%.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.